Financial Forensics:

Advanced Tactics for Combating Accounting Fraud

HOW TO PREVENT ACCOUNTING FRAUD IN FINANCIAL SECTOR

Budi Santoso SE, Ak, MForAccy, PCGS, CA, CFE, CPA (Aust.), QIA
Director of Forensics and Anti-Financial Crime, PwC Indonesia

2 May 2024
With You today

Budi Santoso, SE, Ak, MForAccy, PCGS, CA, CFE, CPA (Aust.), QIA
foto Financial Crime & Forensics Director
budi.santoso@pwc.com

Budi Santoso is Director in PwC’s Forensic Services and Financial Crime Territory Leader, based in the Jakarta office. Budi has more than 20 years of experience in Indonesia and other
countries in South East Asia conduct corruption/fraud and money laundering investigations; asset trace & recovery; dispute & litigation support; design, implement and evaluate anti-fraud
programs (both prevention and detection), develop artificial intelligence based fraud detection system and anti money laundering including transactions monitoring system, third party due
diligence system etc.; perform fraud risk assessment; internal control assessment and improvement; compliance due diligence; US FCPA & UK ABAC reviews; business process reviews;
good corporate governance reviews; and perform complex worldwide business intelligence before investing for Western and Far East companies. An experienced trainer, he is also
capable in leading modernizing & transforming corporate GRC (performance, risk management, compliance & internal audit). Budi participated in the selection of OJK 2022-2027
Commissioners who pass up to the President.
RELEVANT EXPERIENCES
★ 10 years : worked for the elite Indonesian Corruption Eradication Commission (KPK), serving as Head of the Commissioner’s Office, Head of the Prevention Secretariat, and also as
an investigator/examiner (2005-2015)
★ 2 years : Senior Manager in the Fraud Investigation and Disputes team at Ernst & Young (EY) Indonesia (2016-2018)
★ 2.5 years : Senior Director in the Business Intelligence & Investigations at Kroll in the Singapore office (2018-2020)
★ 3.5 years : Director in the Forensics & Financial Crime Unit Leader at PricewaterhouseCoopers (PwC) in the Jakarta office (2020-present)

EDUCATION AND CERTIFICATION

★ Bachelor of Economics in Accounting from Sebelas Maret University (Solo-Indonesia) – 2004
★ Official education at Indonesia Police Academy (Semarang-Indonesia) - 2006
★ Master of Forensic Accounting from University of Wollongong (New South Wales-Australia) - 2009
★ Postgraduate Certificate in Corruption Studies, University of Hong Kong (Hong Kong-China) – 2012
★ National Integrity System (NIS) short course, Malaysia Anti-Corruption Academy (Kuala Lumpur-
Malaysia) - 2013
★ Governance & anti corruption short course from the International Law Institute, Georgetown
University (Washington DC-USA) – 2015
★ Transparency & Accountability short course at Griffith University (Queensland – Australia) - 2023
★ Certified Fraud Examiner (CFE)
★ Chartered Accountant (CA)
★ Certified Practicing Accountant (CPA Aust.)
★ Qualified Internal Auditor
PROFESSIONAL ASSOCIATIONS
★ 7 years for the Association of Certified Fraud Examiner (ACFE)
Indonesia Chapter (2024), previously Director of Training (2017-2024)
★ 2 years for Board Member ACFE Singapore Chapter (2018-2020)
★ 2 years for Certification Board of Indonesia Qualified Internal Auditor
Association (2022-2027)
★ 3 years : Visiting Lecturer at Atma Jaya Catholic University & Sebelas
Maret University in Forensic Accounting class (2020 – present)
2
Agenda
1 The importance of fraud prevention in the financial sector

2 Definition and Types of Accounting Fraud and the Correlation with Financial Engineering

3 Techniques Used in Accounting Fraud in the Financial Industry

4 The Impacts

5 Common Signs and Red Flags & Responding to Fraud Incidents

6 Overview of Laws and Regulations Against Accounting Fraud

7 Internal Controls and Fraud Prevention Strategies

8 Technology Solutions: Automated & AI based Fraud Detection Software and Tools

9 SupTech & RegTech

Fraud prevention strategies are safeguard to financial institutions and their
stakeholders
The importance of fraud prevention in the financial sector cannot be overstated due to the substantial risks and consequences associated with financial fraud.
Therefore, it is essential for financial institutions to prioritise and continually update their fraud prevention strategies.

KEY REASONS

1 2 3 4
Protection of Operational Cost Regulatory
A MEDIAN OF Assets Stability Reduction Compliance
$100,000 IN LOSSES Asset protection of both the Fraud prevention helps Failure to adhere
financial institution’s and Fraud prevention translates minimising costs of requirements imposed to
CAUSED BY FRAUD the customer’s (incl. against into ensuring smooth and investigation, legal and combating fraud can result
uninterrupted operations recovery – on top of loss of in hefty fines, sanctions,
INCURRED IN theft of funds)
funds and legal consequences
FINANCIAL SECTOR

5 6
Data was compiled from 2,100 real cases Maintaining Trust &
of fraud in 133 countries by 90,000 anti- Reputation
fraud professionals.
Financial institutions rely
Source: ACFE, 2022
heavily on customer trust.
Thus, fraud can severely
damage reputation
7 8
Enhanced Customer Global Financial Long-term
Experience Integrity Profitability
Robust fraud prevention
Fraud in the financial sector
A secure environment strategies contributes to
can have wider economic
contributes to a positive financial institutions
implications, affecting
customer experience sustainability by avoiding
global financial stability
large-scale losses

HOW TO PREVENT ACCOUNTING FRAUD IN FINANCIAL SECTOR

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2 May 2024
In the financial sector, accounting fraud can take several distinct forms, designed
to manipulate financial records and deceive stakeholders
1 2 3

LOAN LOSS REVENUE

SECURITIES
PROVISION RECOGNITION
FRAUD
FRAUD FRAUD

Accounting fraud is the deliberate 4 5

misrepresentation, misstatement, or omission of
financial statement data to mislead financial
statement users, particularly investors and
BAD DEBT WINDOW
creditors. MANIPULATION DRESSING

6 7 8

FRAUDULENT DERIVATIVE IMPROPER

TRANSFER ACCOUNTING USE OF
PRICING FRAUD ALLOWANCES

HOW TO PREVENT ACCOUNTING FRAUD IN FINANCIAL SECTOR

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2 May 2024
Detailed techniques are used in accounting fraud within the financial sector
Loan Loss
Provision
Manipulation
1 Income
Financial institutions often
need to estimate potential
losses from loan defaults.
Overstating or
understating these
provisions can either
inflate profits or smooth
them over time.
HOW TO PREVENT ACCOUNTING FRAUD IN FINANCIAL SECTOR
2 May 2024
Interest Improper Valuation
Smoothing
2 of Financial
Manipulating the timing or
recognition of interest
income to stabilize
financial results across
periods.
This could involve the
strategic timing of
recognizing interest
income from loans or
investments.
Instruments
3 Misreporting of
Valuing complex financial
instruments (e.g.,
derivatives, mortgage-
backed securities, or
other investment vehicles)
at inflated or deflated
values to misrepresent the
institution’s
financial position.
ss
Liquidity 4 Understating
Misrepresenting the
liquidity ratios can give a
misleading sense of
security about a
financial institution’s ability
to cover short-term
liabilities. Techniques
might include
short-term borrowing at
period-end to boost cash
balances temporarily.
Window
Risk Exposure 5 Dressing
Financial 6
Statements
Techniques to enhance
the financial statements
Under-reporting the true
temporarily at the reporting
risk exposure of financial
date to improve the
positions or operations.
financial ratios used by
analysts and investors.
This can involve not fully
disclosing the risks
This could involve
associated with financial
short-term trades,
instruments or investment
adjustments in portfolio
positions.
management, or shifting
the timing of recognition.
6
Accounting fraud can have far-reaching and severe impacts on a company,
stakeholders, and the broader economy…

FINANCIAL LOSSES OPERATIONAL DISRUPTIONS

01 ● Investors and shareholders ● Management turnover 05
● Company ● Employee morale

DAMAGE TO CREDIBILITY MARKET AND ECONOMIC

02 AND REPUTATION IMPACT 06
● Corporate reputation ● Stock market volatility
● Trust erosion ● Sector credibility

LEGAL AND REGULATORY IMPACT ON AUDITING AND

03 CONSEQUENCES ACCOUNTING PROFESSIONALS 07
● Litigation ● Professional scrutiny
● Regulatory penalties ● Changes in auditing
● Criminal charges practices: stricter

HOW TO PREVENT ACCOUNTING FRAUD IN FINANCIAL SECTOR

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 Financial engineering can be misused to gain benefit illegally (accounting fraud?)
Financial engineering refers to the
application of mathematical techniques to
solve financial problems, design financial
instruments, and develop investment
strategies. It often involves the use of
complex derivatives, structured finance
products, and various forms of quantitative
models to achieve specific financial goals,
such as risk management, profit
maximization, or cost reduction.
Risk Effective
Management Monetary Policy
Portfolio Liquidity
Optimisation Provision
Accounting fraud involves deliberately
manipulating financial statements to create a
false impression of a company's financial
health. This can include overstating revenue,
understating expenses, or hiding debts. The
aim is typically to mislead investors,
regulators, and other stakeholders about the
company’s financial condition.
Financial engineering is not inherently fraudulent; it is a legitimate and important aspect of modern finance.
It only becomes problematic when used unethically or illegally
Correlation between Financial Engineering and
Accounting Fraud:
1
Financial engineering becomes correlated with accounting fraud when
Misuse of its techniques are misused to obscure the true financial state of a
Techniques company. For example, complex financial products might be used to
hide liabilities off the balance sheet or to smooth earnings over time in
a way that misleads investors.
2
The inherent complexity and lack of transparency in some financial
Complexity engineering practices can provide opportunities for dishonest
and Opacity executives to manipulate financial outcomes. Complex structures can
make it harder for auditors and regulators to detect malpractice.
3
Off-Balance This technique involves moving liabilities off a company's balance
sheet to make the company appear financially healthier. It's achieved
Sheet through the use of financial instruments like leases, joint ventures, or
Financing partnerships that don't have to be reported on the balance sheet.
3
Financial engineering can be used for regulatory arbitrage, exploiting
gaps or ambiguities in financial regulations. This can sometimes verge
Regulatory into fraudulent territory if it involves deliberate deception or illegal
Arbitrage activities to circumvent the spirit of the law.
.
4
In merger and acquisition deals, financial engineering can be used to
Creative manipulate the books to make the acquisition appear more
Acquisition beneficial than it might be. The goal here can be to inflate intangible
Accounting assets or goodwill, allowing the acquirer to write off expenses over a
longer period and artificially boost profitability in the short term.
8
Financial engineering abuse and accounting fraud have occurred in the past
Example: The Global Financial Crisis (GFC) 2008 - Subprime Mortgage Scandal
This example illustrates how financial engineering can be used
to create complex products and structures that may not align
with ethical practices or regulatory compliance, which impacts
on the global economy and led to significant changes in
financial regulations and oversight.
Several banks and financial institutions faced legal actions and paid substantial fines and
settlements for their roles in these activities. For example, in 2014, Bank of America
agreed to pay a $16.65 billion settlement for misleading investors about the risks of its
mortgage-backed securities
Misrepresentation of Mortgage Quality:
Financial institutions were involved in the origination and distribution of
subprime mortgages, which were often repackaged into complex financial
products such as mortgage-backed securities (MBS) and collateralized debt
obligations (CDOs). In some cases, the quality of these underlying mortgages
was misrepresented in the financial statements and prospectuses of these
securities.
Off-Balance Sheet Entities:
Banks used off-balance-sheet entities to move these risky securities off their
books, making the banks appear more financially stable than they were. This
practice hid the level of risk they were exposed to from subprime mortgages
and related products.
Improper Valuation of Assets:
There were instances where financial institutions did not accurately value
their holdings of MBS and CDOs, leading to inflated asset values on their
balance sheets. This overvaluation of assets was part of the larger problem
of mispricing risk, which was rampant in the years leading up to the GFC.
Failure to Disclose Risks: Companies involved in creating and selling
complex financial products often failed to disclose the true level of risk
associated with these products to investors, which is a form of accounting
fraud.
The collapse of Lehman Brothers and the failure of several other major financial
institutions were significant events that highlighted these abuses. The unraveling of
these complex financial products led to a massive loss of confidence in the global9
financial system and required unprecedented government intervention.
Common signs and red flags indicating possible fraudulent accounting practices
Although these red flags do not necessarily prove the existence of fraud, but
RAPID INCREASE IN
1 these should prompt a closer examination of the financial records and
FINANCIAL PERFORMANCE
practices.
CHANGES IN AUDITORS OR
2
LEGAL ADVISORS
Unusually fast growth or profitability, especially compared to other industry players, without a clear, logical explanation.
COMPLEX OR UNUSUAL
3
FINANCIAL STRUCTURES
Frequent changes in auditors, especially if previous auditors were dismissed without transparent reasons, or changes in legal
SIGNIFICANT, UNEXPLAINED counsel under similar circumstances.
4 VARIANCES FIGURES
Overly complex financial transactions or corporate structures that do not have a clear business purpose and seem designed to
ISSUES HIGHLIGHTED BY obscure ownership or financial status.
5 AIUDITORS
Large, unexplained discrepancies between projected and actual financial results, which might indicate manipulation of figures to
ANOMALIES IN SPECIFIC meet targets.
6 FINANCIAL STATEMENT ITEM
Qualified audit opinions or auditors’ reports that highlight issues with financial statements can be a major red flag; or frequent
RESISTANCE TO PROVIDING restatements of financial statements to correct “errors”.
7 INFORMATION/DISCLOSURE
Significant off-balance sheet liabilities, sudden changes in asset quality or valuation, or unusual increases in short-term borrowings
USE OF INTERIM FINANCIALS at the period end.
8 THAT DIFFER FROM YEAR END
STATEMENTS
Delays in providing information during audits or reluctance to grant access to certain data or employees.

Frequent or significant adjustments made in the year-end financial statements that were not reflected in the interim reports.

HOW TO PREVENT ACCOUNTING FRAUD IN FINANCIAL SECTOR

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2 May 2024
Responding to fraud incidents: handling the aftermath of fraud detection
effectively is crucial to limit the damages and to restore trust
Detailed strategies for dealing with fraud once it is detected, legal reporting obligations, and managing
public relations
3
2
1
MANAGING PUBLIC RELATION AFTER
LEGAL PROCEDURES AND
FRAUD INCIDENT
WHEN FRAUD IS DETECTED… REPORTING REQUIREMENTS

Immediate public communication:

Compliance with laws and regulations: 1. Craft a careful statement
Immediate response and containment: Understand obligations (e.g., SOX in the
1. Secure the evidence 2. Regular updates
US)
2. Suspend suspected
employees Transparency: be as open as legally and
Cooperation with authorities: provide practically possible about the findings of the
Investigation: assistance during investigations, investigation and the steps being taken.
1. Assemble an investigation providing access to documents,
team evidence and interviews with staff Stakeholder engagement:
2. Document the investigation 1. Direct communication
Legal follow-up: 2. Employee communication
Assessment: 1. Pursue recovery
1. Evaluate the impact 2. Defend against litigation Rebuilding trust:
2. Identify weaknesses 1. Implement reforms
2. Ethics and compliance training
Notification:
1. Regulatory reporting
2. Law enforcement

HOW TO PREVENT ACCOUNTING FRAUD IN FINANCIAL SECTOR

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2 May 2024
Laws and regulations are established in enhancing the transparency, accuracy and
accountability of financial reporting
Noteworthy overview of some key laws and regulations against accounting fraud

DODD-FRANK WALL GENERAL DATA

INTERNATIONAL ANTI-MONEY
SARBANES-OXLEY ACT STREET REFORM & PROTECTION
FINANCIAL REPORTING LAUNDERING (AML)
(SOX) – 2002 CONSUMER PROTECTION REGULATION (GDPR) –
STANDARD (IFRS) LAWS
ACT – 2010 EU

1 2 3 4 5
Enacted in response to IFRS standards are Global standards to prevent
Passed in response to the
major corporate and international accounting money laundering often
2008 financial crisis to
accounting scandals, standards issued by the overlap with efforts to
prevent a repeat of the While primarily focused on
including those International combat accounting fraud,
excessive risk-taking that led data protection, GDPR
involving Enron and Accounting Standards Board particularly where it involves
to the crisis. affects accounting fraud by
WorldCom. (IASB). falsifying financial records
requiring robust
to hide the origins of
management and security
● CEO/CFO illegally obtained money.
● Whistleblower ● Global standard, of personal and financial
certification data, which helps prevent
incentives and encouraging a single
● Internal controls fraudulent misuse.
protections set of high-quality, ●
● Auditor Know-Your-Customer
● Corporate global accounting (KYC)
independence
governance standards ●
● Whistleblower Suspicious Activity
● Financial stability ● Harmonisation Reports (SARs)
protection

HOW TO PREVENT ACCOUNTING FRAUD IN FINANCIAL SECTOR

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 Prevention from the Regulatory Perspective

The existing regulations in combating the abuse and/or misuses of financial

engineering
The roles of regulators in preventing financial The current regulatory frameworks utilised to The gaps analysis & room for future
engineering abuse and/or misuses oversee financial engineering activities improvements in regulating financial
engineering
1 Basel III
Regulators’ main objectives The regulation reinforced banks to hold more and
better quality capital and maintain more robust Basel III and the Dodd-Frank Act have made
liquidity buffers. significant strides in promoting stability in the
Setting standards financial sector.
Setting the standards for the design, Pilar I Pilar II Pilar III However, regulations need to be regularly
marketing, and use of financial
updated, especially with the new financial
products Enhanced
supervisory Enhanced
engineering techniques being developed all the
Enhanced time.
review risk
minimum
process for disclosure
Managing systemic risk capital &
firm-wide & market Potential areas for improvement
Protect Investors
liquidity
risk mgmt. & discipline
Manage Risks

For instance, by imposing limits on requirements

the use of certain derivatives capital
planning Shadow banking system is less
01 regulated than traditional banks despite
its growth
Enforcing compliance 2 Dodd-Frank Act
Regulators have the power of The regulation is relevant for organisations that FinTech operations that are outside
enforcing compliance with their 02 existing regulatory frameworks
transacts in OTC derivatives.
rules, including penalties for non-
● It restricts banks from engaging in proprietary
compliance
trading and certain speculative investments
Opportunity for regulatory arbitrage due
● It creates the Consumer Financial Protection 03 to financial operations cross-border
Bureau to protect customers from deceptive
Financial Market Integrity financial practices
● It enhances greater risk management

13
Integration of internal controls and fraud prevention strategies is required to
significantly mitigate the risk of accounting fraud

Components:
●
01 Control environment (incl. Clear
organisation structure, assignment of
authority, commitment)
● Training and awareness
● Regulatory compliance ● Risk assessment
● Ethics officer or compliance ● Control activities
committee ● Information and communication
● Monitoring activities

04 02 Proactive measures:
● Segregation of duties
● Systematic audits and reviews
● Fraud risk management (“FRM”)

Technological tools:
● Automated solutions
● Dynamic adjustments ● Data analytics and big data
● Learning from incidents
03

HOW TO PREVENT ACCOUNTING FRAUD IN FINANCIAL SECTOR

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2 May 2024
 Principles of Abuse Prevention

Financial engineering and legal engineering should be used responsibly, ethically,

and in line with regulatory and societal expectations

Strengthening Regulatory Enhancing Transparency Robust Supervision and Implementing Strong Implementing
Frameworks and Disclosure Oversight Corporate Governance Whistleblower Protection

Create stability
Innovation and efficiency
Regulatory and Enforcement Measures
Transparency Accountability
Regulators
Social
Integrity
responsibility

With ongoing commitments to

Professionals

Institutions
Financial
Artificial Artificial
Legal

Intelligenc Intelligenc
e e

Corporate &
Individuals

Education and Collaboration Initiatives

Fostering Ethical Culture
Consumer and Investor
Education
By embracing these principles, society can harness the
Utilizing Technology and Engaging with Industry benefits of financial engineering and legal engineering
Analytics Stakeholders
while minimizing its potential risks and abuses

15
Technological empowerment to enhance financial institutions’ capabilities to
detect, prevent and respond to accounting fraud
Fraud Detection
Software
Feature #1 Anomaly
Detection – modern FDS
identifies transactions that
deviate from normal
patterns (e.g., unusual
account transfers).
Feature #2 Predictive
Analytics – by analysing
historical data, trends and
patterns that may lead to
fraud can be forecasted.
HOW TO PREVENT ACCOUNTING FRAUD IN FINANCIAL SECTOR
2 May 2024
Fraud detection software and tools
Regulatory Technology Integration and Advanced Security
Behavioral Biometrics Real-Time Processing
(RegTech) Interoperability Measures
Function #1 User Encryption and Capability #1 Real-Time
Implementation #1 System Integration #1
Behaviour Analysis – Tokenization – Protecting Data Analysis – Many FDS
Compliance Monitoring – Enterprise Integration —
monitor and analyse users’ data by encrypting data in can analyse transactions in
automate the tracking of FDS are integrated with
behavioural pattern when transit and at rest, and real-time, providing
regulatory changes and other enterprise systems
interacting with bank using tokenization to secure immediate alerts and enable
ensure that FIs comply. like CRM and ERP.
systems. sensitive information. quick responses.
System Integration #2 Secure Access Controls –
Implementation #2
Function #2 Continuous Interoperability with Implementing advanced Capability #2 Real-Time
Transaction Monitoring
Authentication – check Existing Systems – access controls to ensure Dashboards – These
System – these systems
users’ identity continuously Effective FDS are designed that only authorised provide ongoing insights
are crucial for AML and
throughout a session, to be interoperable with personnel can access into financial activities and
KYC compliance, providing
enhancing security. existing systems and sensitive financial info and alerts.
real-time monitoring.
databases. systems.
Supporting emerging technologies
BLOCKCHAIN AI/ML DATA MINING BIG DATA ANALYTICS
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Implementing AI-driven anomaly detection is essential for financial instituions to
enhance financial integrity, ensure regulatory compliance, and mitigate risks

Implementing AI-driven anomaly detection involves setting up

systems that can learn from historical financial data, apply
sophisticated algorithms to identify irregularities, and evolve
with new financial practices and regulatory requirements.

Benefits

Enhances the accuracy of Improves operational Reinforces internal controls

financial reporting efficiency against errors and fraud

By leveraging AI, financial institutions can ensure more robust financial reporting, compliance
with evolving regulatory standards, and effective management of financial and operational
risks.
Supporting AI technologies

PATTERN MACHINE PREDICTIVE NATURAL BIG DATA

RECOGNITION LEARNING ANALYTICS LANGUAGE ANALYTICS
PROCESSING

March 2024
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In the context of the accounting within a bank, AI can play a crucial role in
identifying anomalies

Examples that relevant to the internal accounting and finance operations

Anomalies in Capitalization vs. Unexpected Changes in Cost of
Misclassification of Expenses Discrepancies in Tax Liabilities
Expense Decisions Funds
Anomalies may
not necessarily Anomalies in General Ledger
Payroll Anomalies
Suspicious Changes in Anomalies in Off-Balance Sheet
Entries Allowance for Doubtful Accounts Items
be directly
related to Deviations in Financial Ratios Suspicious Journal Entries
Unexplained Fluctuations in
Cash Flow Statements
Discrepancies in Accrued
Expenses
external fraud
but could Unusual Changes in Account
Balances
Unusual Vendor Payments
Deviations in Bank
Reconciliations
Unusual Foreign Exchange
Transactions
indicate internal
Inconsistencies in Inter- Anomalies in Investment Inconsistencies in Capital
discrepancies, company Transactions
Abnormal Loan Provisioning
Valuations Structure Adjustments
errors, or
Fluctuations in Interest Income Disparities in Fixed Asset Irregularities in Hedging Anomalies in Related Party
inefficiencies in or Expense Registers Activities Transactions
financial Variations in Depreciation and Inconsistencies in Revenue Irregularities in Non-Interest Fluctuations in Operating
reporting and Amortization Methods Recognition Income Leases

management Variations in Insurance Unaccounted-for Digital Asset

Reserves Transactions

March 2024
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AI plays a crucial role in detecting anomalies related to expense and revenue
management, ensuring financial transparency and integrity
Common misconduct … … can be solved by AI
1 Classifying the typical bank charges as finance costs AI can detect when transactions are
consistently misclassified in the
Misclassification of 2
accounting records, either due to
Staff training or recruitment cost as part of staff cost
Expenses human error or potentially for
manipulative purposes.
3 Misclassifying capital expenditures as operating expenses

1 Premature revenue recognition

Inconsistencies in AI can spot unusual patterns in
revenue recognition that don't align
Revenue 2 Improper timing of revenue recognition
with actual sales activities or
Recognition contractual terms.
3 Revenue from uncertain sources

1 Transactions recorded at unusual times

Anomalies in AI can assist in uncovering potential
errors or fraudulent activities, such as
General Ledger 2 Transactions involving round sums without proper documentation
embezzlement or financial statement
Entries manipulation.
3 Transactions without adequate documentation or explanation

1 Discrepancies between calculated tax liabilities and those reported

AI tools can identify discrepancies, and
Discrepancies in flagging potential errors that could
2 Unrecognized tax liabilities
Tax Liabilities impact financial reporting and
compliance.
3 Potential errors in tax calculations

March 2024
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Monitoring financial transactions is essential to detect anomalies that could
indicate errors or fraudulent activities
Common misconduct … … can be solved by AI
By monitoring account balances, journal
entries, and vendor payments, AI can Flag sudden, unexplained increases or decreases in
Unusual Changes in Account
identify unusual changes and suspicious 1 Balances
account balances that don't align with known
business activities or financial cycles.
activities, enhancing financial transparency.
Flag journal entries that lack proper authorization,
2 Suspicious Journal Entries documentation, or appear to be manually
manipulated to meet certain financial outcomes.

3 Unusual Vendor Payments

Detect payments to vendors that are inconsistent with
past transactions.

Detect inconsistencies or unauthorized changes in

Unusual Changes in Account
4 Balances
the methods used for calculating depreciation or
amortization.

Identify significant fluctuations in interest income or

5 Suspicious Journal Entries expense that are not explained by changes in interest
rates or loan volumes.

Detect anomalies in the calculation or adjustment of

6 Unusual Vendor Payments reserves for insurance products offered by the bank,
such as loan protection policies.

March 2024
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SupTech & RegTech to improve the quality of digital financial system
Suptech and RegTech are expected to be able to enhance the ability to understand, monitor, and mitigate the risks associated with financial reporting and accounting
practices. They represent significant advancements in combating financial and accounting fraud

POJK No. 13/2018 concerning Digital Finance Innovation in the Financial Services Sector
● Providers must deploy devices that can increase OJK monitoring efficiency and compliance by establishing a special
RegTech unit within the provider.
● DFI supervision covers risk-based and technology and market discipline supervision

RegTech by the authorities, i.e., Financial Service Authority

by the market participants, i.e., Financial Institutions
1 Automated Compliance: ensuring that financial reporting complies with
the applicable accounting standards and regulations, reduce the risk of
unintentional errors or deliberate fraud within an organization's financial
statements.
2 Data Analytics: can identify anomalies or patterns indicative of fraudulent
activity. can analyze vast datasets in real-time to spot inconsistencies,
outliers, or trends that human auditors might miss.
3 Transaction Monitoring: flag transactions that deviate from normal
patterns, which can be an indicator of fraud.
4 Risk Assessment: providing up-to-date risk reports using the latest data.
identifying areas of high risk for fraud and enable organizations to focus
their auditing and monitoring efforts more effectively.
5 Improved Transparency: Blockchain and other distributed ledger
technologies can create transparent and immutable records of financial
transactions, reducing the ability of individuals to alter financial data
retroactively.
SupTech
Enhanced Supervision: analyze data more effectively & can spot
1
irregularities that may indicate fraudulent activities.
2 Real-Time Reporting: enables real-time data collection and reporting,
which means can respond more swiftly to potential signs of fraud,
rather than relying on retrospective analysis.
Predictive Analytics: can identify institutions that are at risk of
3
committing fraud & enabling preventative measures to be taken.
Standardization of Data: promotes the standardization of data
4
submission, which can make it easier to compare and analyze data
across different organizations and systems.
Cross-Border Collaboration: facilitates better collaboration and data
5
sharing among international regulatory bodies, which is crucial for
detecting and preventing fraud in a globalized financial system
21
“The more sophisticated the financial
crimes, the more advanced your
detection should be”

“However, it is not enough to prevent

and detect financial crimes, but also to
predict them” (Busan)

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Thank you!

This content is for general information purposes only and should not be used as a substitute for consultation with professional advisors.

© 2024 PT PricewaterhouseCoopers Indonesia Advisory. All rights reserved. PwC refers to the Indonesia member firm, and may sometimes refer to the PwC network. Each member
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